Search form

Unemployment Numbers Scam

Terrible April economic figures disappoint -- but what statistical gimmicks hide is even bleaker.

When the jobs data were released last week, it was revealed that only 115,000 new jobs were created, well below the 165,000 predicted by the media-anointed economic "experts," and significantly below the 125,000 jobs-per-month pace required just to keep pace with the number of people entering the work force. Yet in an apparent paradox, the unemployment rate dropped from 8.2 percent to 8.1 percent. Presumptive Republican presidential candidate Mitt Romney explains half of it. “There is something about that 8.1 percent figure you ought to know,” he told a crowd at a town hall-style meeting in Cleveland yesterday. “You might assume that that number came down from 10 percent to 8.1 percent because of all the jobs that were created, and that assumption would be wrong. The reason that percent came down was because of all the people that dropped out of the workforce.”

Mr. Romney is correct. Much of the lower number is indeed attributable to the fact that 342,000 Americans gave up looking for work, and those people are no longer counted as being unemployed. Yet there is another, far more ominous element to the paradox that is part of the equation as well: the number of Americans receiving Social Security Disability Insurance (SSDI) has soared.

Since 2010, and directly coinciding with the time millions of Americans used up their 99 weeks of unemployment insurance, disability claims have risen by 2.2 million. And precisely like Americans who have given up looking for work, those receiving disability payments are neither counted as part of the workforce, or part of the unemployed. The rise in the number of claims is daunting. From December 2007 to April 2012, the number of workers receiving SSDI jumped 22 percent, from 7.1 million Americans to 8.7 million. According to economists at JPMorgan Chase & Co. and Morgan Stanley, that figure explains as much as one quarter of the decline in the labor force participation rate.

“How we measure and understand what’s going on in the economy can be influenced by the degree to which various public-support programs are available and being used,” said Michael Feroli, chief U.S. economist at JPMorgan in New York. “With a rising number of disability beneficiaries, there are both lower unemployment rates and lower participation rates.”

That's an understatement. The latest drop in labor force participation, from 63.8 percent in March to 63.6 percent in April, represents the lowest rate since 1981--fully 31 years ago.

The Obama administration's "solution" to the problem? “Workers on SSDI rarely return to the labor force, resulting in a loss to society of the economic contribution those workers could have made,” said a report written in December 2011 by the National Economic Council, Domestic Policy Council, Labor Department and President’s Council of Economic Advisers. “Thus, keeping the long-term unemployed in the labor force should be a priority.” Congress, undoubtedly influenced by election year politics obliged. In February, unemployment benefits were extended through the end of 2012 as part of the Middle Class Tax Relief and Job Creation Act. That move was likely buttressed by research from David Greenlaw, a managing director in New York at Morgan Stanley. In March, he noted that more than 99 percent of all SSDI beneficiaries remain in the program until retirement age.

In other words, give people a temporary extension in unemployment compensation, or they might go on the dole permanently.

A 2006 research paper written by MIT economist David Autor and Mark Duggan at the University of Pennsylvania’s Wharton School in Philadelphia gets to the nub of the problem. SSDI “appears in practice to function like a nonemployability insurance program for a subset of beneficiaries,” they wrote. Less-stringent screening procedures, more attractive benefits and a waning need for less-skilled workers have bolstered SSDI rolls, they added.

Autor followed up that report with one written in 2011, in which he contended that while the "SSDI program is a central component of the U.S. social safety net, it suffers from two substantial ailments that limit its effectiveness and threaten its long-term viability. First, the program is ineffective in assisting the vast majority of workers with less severe disabilities to reach their employment potential or to earn their own way. In fact, the program provides strong incentives to applicants and beneficiaries to remain out of the labor force permanently, and it provides no incentive to employers to implement cost-effective accommodations that would enable disabled employees to remain on the job....Second, the program’s expenditures are extremely high and growing rapidly."

How large is the problem? According to a report by Richard Burkhauser and Mary Daly in the spring issue of the Journal of Policy Analysis and Management, a mind-bending 7 percent of the nonelderly adult population could be receiving disability benefits by 2018. That’s two years after the SSDI program will run through its trust fund, according to an April report by the Social Security trustees--which also reveals that the deficit of non-interest income will reach "$66 billion between 2012 and 2018 before rising steeply as the economy slows after the recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers."

As for the cost, the SSDI program has grown substantially as well. In January, the federal government sent disability checks to 10.5 million Americans including 2 million to spouses and children of disabled workers. That amounts to a record-setting $200 billion per year, much of which is driven by the spike in "mental illness" claims that now account for 43 percent of the total, a 10 percent increase in such claims prior to the economic turndown. Furthermore, the overall cost has more than doubled since 2001. Michael Feroli, chief US economist with JPMorgan, reveals the obvious reason behind the surge. “It’s not like other support programs, such as unemployment insurance, which you lose after a year or two,” he noted.

How are such numbers related to unemployment? Sitka Pacific Capital investment advisor, Mike Shedock, explains. First he notes that, despite the above total of 10.5 million disabled workers, Economic Research by the Federal Reserve of St. Louis reveals that there are 27.5 million non-institutionalized, civilian Americans 16 year of age and older with a disability. Based on a fraud rate of only 10 percent, the "civilian labor force would rise to 157,145,000 from 154,395,000. The number of unemployed would rise to 15,508,000 from 12,758,000." If those people were counted among the unemployed?

The rate would be 9.9%. Shedock further notes that the jump in claims continued after the recession was ostensibly over.

Why is nothing being done to separate the fraudsters from the legitimately disabled? "It’s an epidemic nobody talks about because it could bleed into the sensitivity associated with legitimate recipients of social security disability insurance payments," writes Townhall columnist Charles Payne. "The program provides money to people too young to get social security and unable to work." Payne continues. "The problem is that so many young people, especially men, are claiming they are nuts. Yes, this is the biggest scam since the welfare queens of the 1980s, and it’s getting worse. They call it 'the crazy check' and there are wide swathes of men playing the system for these checks...It’s a national tragedy. When so many brave young men and women have been permanently injured fighting wars for this nation others can shuffle to their mail boxes and get paid."

Indeed. While there is little question millions of Americans are legitimately disabled and well-deserving beneficiaries of America's safety net, there is equally little question that there are substantial numbers of Americans willing to game the system. Furthermore, there is no question that any concerted effort to determine the distinction between the two groups will be met with the predictable cries of "heartlessness" such efforts invariably elicit.

Such resistance is amplified by election year politics. First, the president is running a divide-and-conquer re-election campaign whose success hinges on turning various sub-groups of Americans against one another. Second, an unemployment rate that can be "massaged" by omitting millions of discouraged and "disabled" workers from the labor participation force substantially helps to obscure the administration's miserable economic record. Third, and perhaps most cynically, an ever-increasing number of dependent Americans who rely on ever-increasing government for their well-being--regardless of whether or not it bankrupts the nation in the process--is the mother's milk of progressive ideology that Democrats and their standard-bearer in the White House hope to exploit at the polls next November.

And while this article focuses on disabled Americans it should also be noted that the number of Americans on Extended Benefits (EB) and Emergency Unemployment Compensation (EUC) has also soared. In 2008, approximately two million unemployed workers had received EUC or EB. As of October 2011, that number has increased nearly nine-fold to 17.9 million.

Amanda Henneberg, Romney campaign spokeswoman, illuminates the big picture. “After a doubling of gas prices, declining incomes, millions of foreclosures, and record levels of unemployment, Americans know they’re not better off than they were four years ago,” she said.

Maybe they do, but "better off" is a relative term for a substantial number of people attuned to the siren song of big government. It is no secret that many Americans actually prefer living off government than making the kind of life for themselves that can only be achieved by working hard and making sensible choices. Whether those Americans represent a majority of the voting public will be one of the central revelations of the November vote.